Monthly Archives: August 2013

In April, 2012, President Barack Obama signed into law the Jumpstart Our Business Startups (JOBS) Act, which makes it far easier for companies to market their securities to investors. Next month, rules mandated by the JOBS Act and adopted in July by the Securities and Exchange Commission will go into effect that loosen the decades-old prohibitions on general solicitation efforts such as cold calling, mass mailing, and running certain commercials. The rules won’t only apply to, say, start-up tech companies. They’ll also apply to hedge funds, private-equity funds, and other alternative investment funds.

Will we soon see full-page advertisements for hedge funds in the Times, GQ, or Sports Illustrated? Maybe there will be smiling children and a line like “Invest in Cerberus: Your Future and Your Family.” Will they run commercials during the Super Bowl or the Sunday-morning talk shows? What about mass mailings to everyone in the tri-state area who bought a Mercedes-Benz or a Rolex last year? It’s all possible now.

Securities and Exchange Commission enforcement officials have decided not to recommend filing civil charges against hedge-fund firm Magnetar Capital LLC, which teamed up with Wall Street firms to create mortgage securities that suffered billions of dollars in losses during the financial crisis, according to people familiar with the situation.

The decision is a sign the SEC’s investigations into whether companies or individuals broke the law with their conduct ahead of the crisis are running out of gas. Despite last week’s courtroom victory in a civil trial against former Goldman Sachs Group Inc.GS -1.13% trader Fabrice Tourre over his role in a deal called Abacus 2007-AC1, securities regulators are quietly winding down some of their highest-profile investigations related to the crisis, these people said.

Magnetar is an Illinois hedge-fund firm that was started in 2005 and named after a type of neutron star, a remnant of a collapsed sun. The firm worked closely with some of the biggest banks and securities firms to create dozens of mortgage-bond deals called collateralized debt obligations.

The securities were linked to pools of mortgages and other debts and sold in slices of varying risk and return. Magnetar helped fuel the CDO machine by purchasing the riskiest portions of certain deals while at the same time betting some CDOs would decline in value.

MADRID—Spanish officials managing soured assets from the country’s real-estate collapse announced their first big property deal, choosing Miami-based private-equity firm H.I.G. Capital to buy a majority stake in a package of 939 homes known as Project Bull.

Officials said the property deal, one of the most closely watched in Europe this year, priced the portfolio at €100 million ($133 million).

The properties were transferred to a Bank Asset Fund, which provides a favorable tax regime to investors, officials said. H.I.G.’s Bayside Capital agreed to take a 51% stake in the fund. Spain’s “bad bank,” the government-run asset-management firm known as Sareb, will retain a 49% stake.

Private-equity firms are adding debt to companies they own to fund payouts to themselves at a record pace, as fears mount that the window for these deals will close if interest rates rise.

So far this year, $47.4 billion of new loans and bonds have been sold by companies to pay dividends to the private-equity firms that own them, according to data provider S&P Capital IQ LCD. That is 62% more than the same period last year, which wound up being the biggest year on record, with $64.2 billion sold to fund private-equity payouts.

Buyout firms acquire companies with a combination of cash and debt, which the acquired companies aim to pay back with earnings. In dividend deals, private-equity-owned companies add more debt so they can pay dividends to their owners. Ultimately, the payouts are distributed to the buyout firms’ own investors, which include endowments, pension funds, wealthy families and the firms’ executives.

A handful of private-equity investors who poured money into banks during the financial crisis are cashing out, reaping billions of dollars in profits—in some cases doubling their money—even as many small lenders continue to struggle.

Their success stands in contrast to dozens of other big investors who scooped up failed institutions but are still stuck with far less profitable holdings.

The different outcomes show that, during banking crises, the lowest price doesn’t necessarily make for the best deal. The investors who do better “are the ones who bought good franchises cheap, not distressed franchises very cheap,” said Joshua Siegel, managing principal and chief executive of StoneCastle Partners LLC, a New York firm formed in 2003 to invest in banks.

Private investors pumped billions of dollars into more than 60 financial institutions from 2008 to 2012, according to data provider Dealogic. Those figures account only for deals for which public data are available. Many bank deals during the period were private and details weren’t disclosed.

One of the most enduring and influential beliefs of the last few decades has been that entrepreneurs need venture capital to build giant companies. This might be true – but only in Silicon Valley.

Silicon Valley has been the land of milk, honey, and money for entrepreneurs and venture capitalists. Arguably Silicon Valley VCs have helped to build perhaps the greatest assemblage of giant, non-financial companies the world has seen. Starting from around the early 1970s, using all types of venture-capital funding arrangements (rich individuals, family funds, small business investment companies, and VC limited partnerships), they have amassed a string of successes ranging from IntelINTC -1.42% to FacebookFB +2.76%.

At a time when bond buyers are shunning junk, Hyatt Hotels Corp. (H) and Farallon Capital Management LLC are trying to drum up financing for 13 all-inclusive beach resorts from Cabo San Lucas to Cancun with Latin America’s riskiest debt in three years.

Playa Resorts Holding BV, a joint venture between Hyatt and the $19.2 billion San Francisco-based hedge fund, is planning to raise $300 million of seven-year bonds that Moody’s Investors Service rates Caa1, or seven levels below investment grade. If completed, the sale would be the first of such a low-rated corporate dollar bond in the region since now-defunct Brazilian meatpacker Independencia SA issued debt in 2010.